The fallout from the Ontario government’s electricity mess continues to spread. News Wednesday that Standard & Poors had downgraded Ontario Power Generation to “bbb-” throws another log to Dalton McGuinty’s power-industry flame-out. At the same time, a leading industry expert — former Ontario Power Authority chief Jan Carr — says the cost of cancelling two major power plant contracts is much higher than the government claims.

Meanwhile, the World Trade Organization has apparently ruled — as the government would have been warned — that its Buy Ontario electricity regulations broke Canada’s trade commitments.

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In a regulatory regime that is costing Ontario residents billions of dollars, new developments often seem inconsequential. What’s another downgrade, another loss, another rate increase — and another trade ­ruling?

First, to S&P: “We believe OPG’s stand-alone financial risk profile is significant.” Cash flow metrics are “weak,” related to pension liabilities but also to the fact that under McGuinty policy the company’s return on investment has become “modest.”

No kidding. The latest quarterly report from OPG, wholly government owned and controlled, showed a $139-million “net income” in the third quarter, an improvement over a loss of $154-million last year. The “improvement,” however, had nothing to do with operations. The money came from investments held on a long-term basis to fund the future decommissioning of the company’s nuclear plants.

Looking forward through the lens of the Standard & Poors report suggests OPG and Ontario ratepayers may have to depend on the decommissioning fund more in future. OPG will “not pay out dividends in the foreseeable future,” said S&P. Indeed, OPG could see another downgrade to bb+.

More importantly, OPG will likely need more cash. Guess where that will come from?

For the [stand-alone ratings] to move a notch higher, we believe OPG would need to improve significantly the level and stability of is overall cash flow strength comfortably above 10%-12%. This could result from an equity injection from the province which we consider to be highly unlikely. It could also result from some form of additional regulatory cash flow support during the upcoming period of high capital spending on large projects that we have seen for other Canadian utilities in a similar position.

The words “additional regulatory cash flow” are code for electricity rate increases to prop up OPG.

The reason for OPG’s financial decline are many, including ritual nuclear cost overruns and government-mandated projects, including the giant Lower Mattagami River project, a dubious extravaganza that is expected to absorb $1-billion in capital expenses in each of the next two years.

Other government-imposed burdens were noted by S&P. “In implementing its energy policy favouring renewable-energy generation to replace the less eco-friendly coal-fired generation facilities, the province has directed OPG toward investments in projects on various occasions. It also required the utility to shut down the remaining coal-fired plants by 2014.”

All this costs money that OPG does not have and instead must borrow from the province. Since the company is owned by the province, OPG bonds are rated “A-.” But if OPG’s stand-alone fiscal risks continue to deteriorate, S&P warns, it may no longer be able to piggyback on the province’s rating. A decline in the stand-alone rating to “bb+” could untether it from the provincial rating and would “result in a downgrade on OPG.”

All this spells bad news and higher costs for Ontario power consumers. From the McGuinty government, the likely response will be denial, following a pattern seen over the gas-plant closures.

Mr. McGuinty has been adamant about the costs to Ontarians of relocating two gas generating stations. The cost of killing the Mississauga plant in suburban Toronto and moving it to Sarnia is $190-million. The proposed Oakville plant, signed with Trans Canada Energy, was killed and moved to Lennox for a mere $40 million. Total cost: $230-million.

Premier McGuinty has taken to ridiculing any suggestions that the cost to Ontario taxpayers or electricity ratepayers might be higher. In an interview with The London Free Press on Nov. 2, Mr. McGuinty was asked the question: “What do you say to Ontarians who still want answers? The Conservatives say the cost of moving plants is up to $1-billion.” To which the premier replied: “What was the latest number? $1.3-billion? Do I hear 1.7? When are we going to get to 2.8? It’s kind of an interesting game.… In total, we are talking a $230-­million cost.”

Mr. McGuinty is also fond of pointing to what appears to be a vast cache of documents the government released on the gas plant cancellations. After the National Post reported on documentary evidence that the cost of cancelling the plants could run to $1.3-billion or more, he told reporters: “You might ask yourself — we’ve had 56,000 pages of documents available for a month now — what has come of this?”

Not much, it is true. Mr. McGuinty is right that the released documents, while thick in volume, are thin in detail on the final costs — but with good reason. As Mr. McGuinty well knows, the 56,000 pages of internal government communications over the plant closures only cover documents dated 2010 and 2011. None are dated 2012, and therefore none of the documents deal with the final settlement agreement between the government and TransCanada Energy over the Oakville plant.

The documents come to a dead end in December, 2011, eight months before Mr. McGuinty’s Liberals reached a memorandum of understanding with TransCanada Energy. Thin on detail, the MOU provided only clues as to the real cost to the taxpayers and ratepayers of the government’s decision — for political reasons — to terminate the signed Oakville contract.

Former Ontario Power Authority chief executive Jan Carr, in an accompanying commentary, takes his own stab at estimating the cost of breaching the Oakville and Mississauga gas plant contracts. He says the $230-million government claim is way too low and conservatively puts the cost to taxpayers and ratepayers at $800-million.

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